Ethereum blockchain ready for 'monumental' overhaul

Ethereum blockchain ready for ‘monumental’ overhaul

Enthusiasts hope greener Ethereum will spark wider acceptance – Copyright GETTY IMAGES NORTH AMERICA/AFP Jesse Grant

An army of computer programmers scattered around the world is about to launch one of the biggest software updates the crypto sector has ever seen this week to reduce environmentally unfriendly energy consumption.

Developers have spent years working on a more energy efficient version of the Ethereum blockchain, the digital ledger that underpins the multi-billion dollar ecosystem of cryptocurrencies, digital tokens (NFTs), games and apps.

Ethereum, the second most important blockchain after bitcoin, consumes more energy annually than New Zealand.

Experts say the transition, which is expected to take place between Tuesday and Thursday, will cut energy use by more than 99 percent.

Enthusiasts hope that a greener Ethereum will drive wider adoption, especially as a way for banks to automate transactions and other processes.

But so far, the technology has been used mainly to create speculative financial products.

ING Bank said in a recent note that the transition could help Ethereum gain acceptance among policy makers and regulators.

“This, in turn, could increase the willingness of traditional financial institutions to develop Ethereum-based services,” the bank said in a statement.

– “Technological milestone” –

The switch, dubbed “merging,” will change the way transactions are recorded.

Nowadays, so-called crypto miners use power-hungry computers to solve puzzles that reward them with new coins – a system known as “proof of work.”

The new system will get rid of these miners and their computer stacks overnight.

Instead, “validators” will have to deposit 32 Ether (worth $55,000) — Ethereum’s cryptocurrencies — to participate in a new “proof of stake” system where they are rewarded for their work.

But the merger process will be risky.

Blockchain company Consensys called it a “monumental technological milestone” and the biggest update to Ethereum since its launch in 2015.

Bitcoin is the latest major blockchain to use an energy-intensive mining process that requires rows of energy-intensive computers. — © AFP

Critics wonder if such an update will go through without incident, given the sector’s history of instability.

Ethereum went offline for three hours in May when a new NFT project sent a surge of buyers flooding the network.

Several exchanges and crypto companies have said they will suspend transactions during the merger process.

– “Decentralized and complex” –

The update also faces a possible uprising from crypto mining companies, whose business will be severely affected.

They may try to take over the process or create a “fork”, essentially a smaller chain of blocks that will continue to work with the old mechanism.

And even if the “merger” is successful, Ethereum will still face major hurdles before it can gain wider adoption.

For example, it’s expensive to use and the upgrade won’t lower the fees.

And the broader crypto sector is suffering from wildly fluctuating prices, security flaws, and a slew of scams.

Cryptography lawyer Charles Kerrigan of CMS firm told AFP that Ethereum was “decentralized and complex” and had not yet been tested enough for governments and banks to use it.

“There were questions about how easily it could handle the updates that traditional software vendors provide to customers,” he said.

“A successful merger will answer these questions.”

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